Editor's note: The Privateer is a global newsletter, based in Australia. It is far easier not to be blinded by the U.S. media when you're not living right in the middle of it. The Privateer is the product of the mind of William Buckler ad has been published continually since 1984. We are Living in Perpetual Crisis We do NOT live in "normal times". In historical terms, the West has not really lived in "normal times" since about 1900. So what were these once normal times? They were an epoch of international peace and global free trade - with the exception of the US behind its tariff walls). They were an epoch when all private business was in fact private. The exemplar nation was Great Britain, solidly placed on the Gold Standard and setting the example for the entire world. Back then, the total cost of government was 4 percent of Great Britain's GDP. Balanced budgets were taken for granted - deficits held in deep scorn. The Only TRUE Political Standard: Before 1900, in the age of Classical Political Liberalism, it was the given that the way to measure a nation's advance was to measure how far and how fast it was advancing towards a greater degree of privacy. Privacy itself was founded upon a towering respect for private property. Public or official life ended at the property line. Behind that line, private life began. That went for individuals and businesses. A business was nobody's business except for the proprietors or owners of that business. The Only TRUE Economic Standard: This economic standard was equally well known back then as the real rate at which any nation added NEW capital to its existing stock of capital. Classical Liberalism had assured Individual Freedom and Liberty. Classical Economics assured the advance of Freedom in the economic realm, followed by Individual Liberty based on property. These were (and are) PEACETIME standards. People even talked of "perpetual peace". Individualism And Peace - Or - Statism And War: Imagine living in an epoch, in Great Britain for example, in which the government only took 4 percent of GDP. Imagine living in the United States, where Washington took even less! Imagine living in a world where there were only two (2) governments demanding passports and visas at their borders before a man or woman from another place could enter. These were the Czars's Russia and the Ottoman Empire. Imagine when the western credo was: "The government that governs the least, governs best." The Classical Gold Standard underpinned it all, politically and economically. A Gold coin IS Liberty. The foremost virtue of the Classical Gold Standard is that NO government can inflate by any arbitrary fiat. That means that the TRUE costs of government are out into the open for all to see clearly. The TRUE Nature Of Our Crisis: The true nature of our present and growing crisis in the West concerns the LEGITIMACY of government. Legitimacy refers to the rightful actions of those who act. "Rightful" refers to whether the actions taken are moral - whether they are right or wrong. None of this refers to "legality". This is not a matter of politicians or their hired hands in any bureaucracy acting "legally". The fact that an action is "legal" does NOT mean that it is moral. In fact, in today's world there are many actions taken by governments which are regarded as "legal", simply because that government has enacted laws to make them legal. A fundamental example of this is the income tax. To tax any private man or woman on his or her income is to place them, in political terms, back in the days of Serfdom. The income tax is a blatant denial of the right to property in the results of one's own efforts. That makes anyone subject to an income tax the productive "property" of those who tax. To be the productive "property" of another is to be a Serf. Our "Modern" Serfdom: What then is a serf? Historically, a serf is a slave who has been turfed out of his owner's compound to try to earn his own living while still being compelled to earn his owner's living. A serf is a man or woman who must provide for him or herself while STILL being the productive "property" of another. Legal records from the early Middle Ages show that a serf's "freedom" was contingent upon the serf paying his or her "dues". "Contingent freedom" is a contradiction in terms. For the former owners of slaves, serfdom was a large economic step forward. The owners were no longer required to feed, clothe or housethe serfs, but they still got their "cut" of the fruits of the serf's labour. It is true that serfs could hold property, but they could not OWN it. The situation is the same today, in the United States, in Europe, in Australia. Anyone living there can discover this by the simple means of NOT paying the local taxes. Should they do so, their so-called "private property" is confiscated and sold at auction to pay their "dues". The existence of the income tax precludes the right of property. For most of us, our lives have become the productive property of "others". THIS is the Western political crisis of legitimacy. Having, in stages, led and lied us into our state of "modern serfdom", western governments now face a gigantic crisis. How Serfdom Ended: Serfs delivered "work dues" on the local noble's lands two or three times a week - more at harvest time. For the rest of the week, they could work on the small plots of land allocated to them. There, just as on the private plots of land in the former USSR, they were fantastically productive. Later, instead of doing work on the Lord's lands, the serfs supplied economic goods they had produced on their own plots to the Lord. Still later, they sold their goods on local markets - for copper and Silver coin. The serf offered some of these coins to the local Lord or Knight who badly needed the money. Finally, they began to buy pieces of the Lord's lands with cash payment, in either Silver or Gold coin saved up over decades of work. The "better" serfs - those who paid very large rents to make better use of a Lord's lands - were the yeomen of England. These were the mighty men who won the King's battles in France with their longbows. These were the men who later became the FREEMEN of England. The land they now owned - they owned FREE and CLEAR. They owed NO feudal dues like those which nobles and knights owed the King for holding lands. The legal British key was this - a FREEMAN owns HIMSELF! The lands he owned were held in law as FREEHOLD. A FREEMAN owed no dues to any local lord, knight or even to his king. As an owner of private property, he owed no dues to ANYONE because he owned his property OUTRIGHT! It was this RIGHT of property which many a British Prime Minister later called: "the small Sovereignty". It is this "small Sovereignty" which is the true foundation stone for Individual Freedom And Liberty. "Man (whether the individual man or the individual woman) has property in his life, liberty and estate." This was stated by the great John Locke in his epoch shaping Second Treatise on Government. This was the foundation upon which was built the USA. The Long, LONG Road Back: It is one of the unacknowledged tragedies of human history that the great Thomas Jefferson decided to change the words penned a century earlier by John Locke. In his immortal Declaration of Independence, undoubtedly with the best of intentions, Jefferson decided to change the last word in John Locke's "life, liberty and estate". In Jefferson's words, this phrase became: "Life, liberty, and the pursuit of happiness". This was a form of poetic license by Jefferson. By 1776, the individual ownership of property had become a universally acknowledged summation of human happiness. From Leasehold - To Copyhold - To FREEHOLD: Those were the legal steps through which the early serfs of England worked their way to Freedom. Leasehold (or "copyhold") was paid by work done on the Lord's land, or produced goods delivered to the Lord, or monetary payments made to the Lord who owned the land. By custom and usage, these payments became standard for later users of these lands. For the Lord to ask for more was deemed ill usage. These evolved rates of payment were copied on what were called the "Manor Rolls". Today, the equivalent would be a demand made by a property owner that all the local rates, fees and other charges be based solely upon the value of the property as reflected in its most recent bill of sale - that value to stand unchanged as long as the current owner is in "possession" of the property. Under what was termed "leasehold", rates, fees and charges must be paid but they cannot be raised. Compare that with what actually happens today. Local governments change the "valuation" against which charges must be paid at whim. On top of that, official "valuations" are made annually and ALWAYS go up, with the rates, fees and charges going up accordingly. The Change To FREEHOLD: The step from leasehold to FREEHOLD is a giant one! Freehold has NO ifs or buts or any other legal finagles. The transition to freehold has happened many times in history. Local political potentates always want to spend more money than they dare to directly extort. So they borrow - like President Bush is borrowing from China, Japan and the Third World - to fund their military escapades. Historically, the time always comes when the local potentate is desperate. That is the time when the leaseholders and "copyholders" offer to pay - IN CASH - a princely sum in return for ABSOLUTELY ASSURED FREEHOLD. The offer has usually been "sweetened" with the argument that the cash payment will earn more if put into the market than the "dues" that are being paid now. The ploy is an old one. If the potentates are desperate enough, it has worked nine times out of ten. The local potentates, if desperate enough, will accept the deal. But because they have become used to living off their extractions of others, they don't put the sum out in the markets to earn what it can earn. In most historical cases, they have spent it all. Having spent it, they look for more, and other leaseholders offer the same deal - absolutely assured FREEHOLD - in return for a princely sum in cash. Potentates at any level from local mayor to President see this as a new and large source of revenue. Being what they are, they cannot help themselves. They go for the money and in turn sign away all future revenues. From Slaves - To Serfs - To Yeomen - To FREEMEN: We repeat, the grand crisis of today is a crisis of the legitimacy of our governments. They are, one and all, BROKE and have made political promises that they can't keep. They all know it. To retain their position, they must keep paying their adherents in their bureaucracies, their internal occupation force. They must also keep buying the votes which preserve their "legitimacy". They can no longer afford this. The Current US Economic State Of Play: The entire US economy is careening out of control. In 2005, the US trade deficit with the world increased for the fourth consecutive year, reaching an all time record high of $US 725.8 Billion, the US Department of Commerce has reported. The US trade gap rose to $US 65.7 Billion in December from $US 64.7 Billion in November and a record $US 68.1 Billion in October. US retail sales account for almost half of all consumer spending, which in turn accounts for about two-thirds of the US economy. In the fourth quarter, US GDP expanded a (revised) 0.3 percent, the slowest pace in three years. The now projected US budget deficit for 2006 is $US 423 Billion, $US 100 Billion more than 2005. The real US 2006 budget deficit, including the $US 5 Billion per week spent in Iraq, will be much, much higher. The Bush Administration will ask for at least another $US 120 Billion in so-called "off budget" funds for Iraq and Afghanistan over the next year, a deception that US war spending doesn't count toward the budget deficit. US personal consumption expenditures have been at a record 71 percent of GDP since early 2002. US credit and monetary inflation is expanding by leaps and bounds! The US broad money supply (M3) stands at $US 10.272 TRILLION. The US M3 is inflating at a 9.4 percent annualized rate. US Bank Credit increased $6.6 billion last week to a record $US 7.584 TRILLION. Over the past year, total US Bank Credit has been inflating at a 9.8 percent annualised rate. All US real estate loans have expanded at a 14.4 percent rate over the past year. Then, to top all of the above, US retailers rang up their biggest sales gains since May 2004 in January, as Americans went on another spending splurge. This huge January increase in US consumer spending amounted to a 2.3 percent rise and followed a 0.4 percent increase in December, the US Commerce Department said. This is not an economy! It is a vast borrowing and consumption machinery. The US Economy - And - The World: In 2005, the US trade deficit increased for the fourth consecutive year, reaching an all time record high of $US 725.8 Billion, the US Department of Commerce has reported. The US trade deficit with Japan last year came in at $US 82.7 Billion, a record for that country. The US trade deficit with China ballooned to $US 201.6 Billion in 2005. The gap jumped 25 percent from last year's $US 161.9 Billion, according to the US Commerce Department. There was a $US 122.4 Billion trade gap with the 25-nation European Union (EU). There was a $US 92.7 Billion deficit with the oily nations that belong to the Organization of Petroleum Exporting Countries (OPEC). The gap with Canada was $US 76.5 Billion and with Mexico it was $US 50.1 Billion. Canada and Mexico are America's partners in the North American Free Trade Agreement (NAFTA). The US deficit with South and Central America rose to another record $US 50.7 Billion in 2005. In sum, the US economy is running huge trade deficits with the entire world! No Way To Close The Gap: The 2005 US trade deficit reflected the fact that US imports rose by 12.9 percent to an all time high of $US 2 TRILLION. This swamped a 5.7 percent increase in US exports which were up 5.7 percent to arecord $US 1.27 TRILLION. US imports up 12.9 percent versus US exports up 5.7 percent tells us all that is economically needed to know. The private and civil US economy cannot catch up in exports with what the US credit machine can acquire with its global borrowing and global spending as imports. This Situation Is Heading For A GLOBAL Breakdown: This global situation has now been going on for more than four years with the US economy piling up ever higher external deficits, while hauling in ever greater amounts of the rest of the world's produced goods. What the rest of the world got in turn - and is left holding - is ever greater amounts of US debt paper. The international legitimacy of the Bush Administration, the US Treasury, and the entire US economy is on the line. Any genuine break in the world's confidence in any of these three will destroy the confidence in the remaining two. And that will take the international legitimacy of the US Dollar down with it. The Approaching US Economic Bankruptcy: The ability of the indefatigable US consumer to borrow and spend was the last hole card in the hand of the huge US credit and lending machine. But now, the US consumer is slowing down! Total US consumer credit, or non-mortgage loans to individuals, increased by 3 percent in 2005 to $US 2.16 TRILLION. This is the smallest gain since a 1 percent rise 13 years ago stated the Federal Reserve in a recent report. Fresh cash extracted by US homeowners from refinancing conventional mortgages may drop to $US 117 Billion this year from an estimated $US 243 Billion last year, according to report from Freddie Mac. That will curb consumer spending, which accounts for around 70 percent of the US economy. US consumer borrowing rose for the second straight month in December but finished 2005 with the smallest annual gain over the past 13 years, a Federal Reserve report now shows. US consumer credit, or non-mortgage loans to individuals, increased by $US 3.35 Billion to $US 2.16 TRILLION, after rising only $US 568 million in November, according to figures released in Washington. US consumer borrowing rose 3 percent for all of last year, the slowest pace since a 1 percent gain in 1992! The US consumer is 70 percent of the US economy. A reduction as low as 10 percent in consumer borrowing and spending would force the US government to spend to compensate. That would blow the OFFICIAL budget deficit out well past the $US 1 TRILLION a year mark. Further, when the vastly overstretched US consumers really start to pay down some of their debts, not only will they take federal and state tax revenues down, they will also "deflate" (i.e. contract) the entire US credit money system. That would leave the US economy in a triple bind, facing exploding federal and state budget deficits, a contracting credit money system and valuations which will dive ferociously, especially in the vital real estate markets. The Privateer's Position: The Privateer has stated its fundamental position repeatedly, though not in a way to belabour the issue. When the US consumer DOES pull his and her horns in and stops borrowing and spending, then it is ALL OVER! It is all over because the US consumer was the last place where the US credit machine could go for its "fuel". It cannot find another source large enough to borrow enough to keep the system going. From FREEMEN To Peons: Peonage is another form of serfdom. To be a peon is to be a slave to debt. A peon is any person who has to send a large part of what they are capable of earning off to the people to whom they owe all the money they have borrowed. And this is just to SERVICE the loan, not to pay down any of the loan itself. Peonage is the fate of millions of people in India, in Mexico, in Africa and in many other places in the world. The lenders, of course, have no real economic interest in seeing the loans paid off. They would lose their own income. Peonage is now the future fate of millions of Americans whose only real hope is that their own government will assist them should the US economy turn really bad. The problem is that the US Federal Government is broke too. It cannot even cover its own expenditures from tax revenues and must borrow from the rest of the world. An economic tragedy of a massive proportions is on the horizon inside the US. The Treasury is counting on the US consumer for its tax revenues and foreign Central Banks to buy its debs. The US consumer is counting on the US Treasury. Both are standing with hollow balance sheets, neither can help the other. That is the REAL economic situation in the US. The US Debt Clock Is Ticking Louder: As reported in recent Privateers, mid-February (i.e. - NOW) is the time when Treasury Secretary Snow said that the Treasury had to start taking extraordinary measures because it had reached the debt ceiling. Mr Snow of the US Treasury went on to say that mid-March is the time where these measures run out and then the US Treasury can no longer meet its scheduled and required payments - unless Congress acts to raise (or abolish) the US debt ceiling. Congress will act. But it will not save the US consumer peon. INSIDE THE UNITED STATES: A FEDERAL BUDGET OF $US 2.77 TRILLION The projected US deficit for 2006 is $US 423 Billion. That's $US 100 Billion more than 2005. President Bush has proposed a record $US 439.3 Billion defence budget, up 4.8 percent from last year. Over fiscal 2005, which ended on Sept. 30, 2005, the Defence department spent about $US 6.8 Billion a month on operations in Iraq and Afghanistan and the replacement of equipment damaged or destroyed there. The White House estimates indicate that the US will spend more than $US 125 Billion during the fiscal year ending in September 2006. An additional $US 50 Billion is already is being planned as a down payment for war costs in 2007. A $US 2.77 TRILLION budget is almost $US 10,000 for every American. Iraq Occupation Update: The hard central fact is that the number of attacks on US forces in December numbered nearly 2,500 and was almost 250 percent of the number in March 2004. This shows clearly that the Iraqi resistance is an increasingly effective militarily force. The White House said last week that it would ask for a further $US 120 Billion in new emergency funds for Iraq and Afghanistan. That comes on top of $US 320 Billion allocated for the two wars thus far. The US is completing the four large air bases that it is building around Baghdad. They are of such a huge size that it makes them into "mini-USAs", signifying that the US intends to stay in Iraq for at least several decades ahead. Inside the Green Zone in Baghdad, the US is building the biggest Embassy complex in the world costing more than $US 600 Billion. US Dollar Warning Signs: BEIJING - Feb. 7: The Chinese government should ideally have cut its foreign exchange reserves by half at the end of last year to help ward off risk and ease upward pressure on the Yuan, an official from the Bank of China was quoted as saying on February 6. China's foreign exchange reserves swelled 34 percent in 2005 to a record $US 818.9 Billion. China's reserves, which will soon surpass those of Japan as the world's highest, are now enough to repay its entire foreign debt and still buy 10 months' worth of imports. When the present international and financial situation of China and the US are compared, the incongruity screams to the sky. China stands with real global net financial savings. The US stands with a net global debt of $US 3 TRILLION which is climbing further with each monthly US trade deficit. China is paying its way internationally. The US lives at the mercy of its lenders, foremost amongst whom is China. More US Dollar Warning Signs: EUROPE - Feb. 6: Syria has switched all of the state's foreign currency transactions to Euros from US Dollars, according to the head of the state-owned Commercial Bank of Syria. "This is a precaution. We are talking about Billions of US Dollars." - stated Mr Duraid Durgham to Reuters. The Syrian bank, which still dominates the Syrian market, although private banks have been allowed to set up in the last few years, has stopped dealing with US Dollars in the international foreign exchange flows of its private Syrian clients. On March 20, Iran, Syria's strategic ally, will open its Euro OIL bourse, cutting in under the US Dollar's current near world monopoly on trading in international oil. This, along with China's threat to sell half its reserves, is a deadly threat to the US Dollar's global reserve currency standing. The Bottom Line: The American general public barely knows about any of this. They all live in a US media centric world, with the US as the centre of the universe and the sole superpower to boot. The fact that so many of them have been reduced to an economic form of peonage strikes most Americans as being "normal". They are close to their individual debt limits, as is US Treasury. The rest of the world knows about all this and increasingly fears the arrival of the day when Americans finally realise that their nation is broke. INSIDE JAPAN - AND CHINA: JAPAN'S SUN ALSO RISES - AND - CHINA SWINGS INTERNAL Japan's current account surplus widened for the fourth month in December, as rising overseas demand for automobiles and electronics fuelled exports. The surplus rose 8.6 percent to 1.75 TRILLION Yen ($US14.9 Billion) from a year earlier, the Ministry of Finance said in Tokyo. Japan's new plant and machinery orders posted their longest run of gains in more than two years. New private machinery orders have risen a seasonally adjusted 6.8 percent in December, the third straight month of such gains. But Japan's Input Costs Are Climbing: The Bank of Japan's overseas commodity index, which is a weighted average of prices of sixteen overseas commodity markets including crude oil, copper and aluminum, had risen by 42.3 percent in January from a year earlier to a record, the Central Bank reported on Feb. 1. Japan's producer prices soared at the fastest pace in almost 16 years in January as all its fuel and raw material costs increased and a weaker Yen raised the price of imported goods. An index of prices that companies pay for energy and raw materials gained 2.7 percent from a year earlier. Japanese final goods costs for raw materials have risen 33.1 percent from a year earlier, the biggest increase since July 1980. If Japan Is Capitalising Up, It Can't Fund The US Treasury: It really is the oldest story in the economics of capitalism. If all input costs are going up, one must either recover these costs with higher selling prices or, if that cannot be done, one must increase efficiency to stay in the market place by employing better tools than before. That means new capital tools, with the old tools going to the scrapheap. And that takes savings, which have to be there to enable the new tools to be brought into existence. Fortunately for Japan, they have some of this world's best private savers. If these savings are going to be employed in a re-capitalisation program, they cannot at the same time be lent out to borrowers such as the US Treasury. Nor can they be lent directly into the US economy. Capital flows into the United States fell to $US 56.6 Billion in December after hitting a revised $US 91.6 Billion in November, the US Treasury Department said on February 15. The decline reflected a pull-back from private global investors. November's capital inflows were revised higher to $US 91.6 Billion from a previously estimated $US 89.1 Billion. The global bells are now tolling for US external funding. China Is Turning Its Economy Inwards - Away From Exports: China's retail sales over their week-long New Year holiday rose 15.5 percent over last year to an As China too starts tooling up with better production tools and equipment, that will absorb even more of China's internal private savings. The end result will be that China too will shortly reduce the funds it is currently sending and lending to the US. Here too, the global bells are tolling for US external funds. The East - West Contrast: Both Japan and China stand with the massive private savings that enable them both to do this. The US stands with no such private or public savings. The US cannot act to re-capitalise itself. INSIDE THE EUROPEAN UNION: GERMANY'S ECONOMY HITS THE WALL A big event has happened in Europe over the past two months. The German economy, which had been travelling reasonably well, has come to a sudden dead stop. Germany is Europe's largest single economy and it is the centre ground of Europe in industrial terms. The German economy failed to advance in the fourth quarter as consumers pared spending and companies curbed production. The gross domestic product, the value of all goods and services, was unchanged from the third quarter when it increased 0.6 percent, the Federal Statistics Office in Wiesbaden has said. As in the US, where GDP growth dived to 1.1 percent (later revised to 0.3 percent) in the fourth quarter, the German economy has hit the wall. Germany Signals A Global Slowdown: This sudden German slowdown has had effects right across the entire Euro zone. In the dozen Euro nations, economic advance slowed to 0.3 percent in the fourth quarter from 0.6 percent in the previous three-month period, the European Union's statistics office in Luxembourg reports. German exports had risen in December to lift last year's foreign sales to a record, led by demand from Asia. In 2005, exports rose 7.5 percent to a record 786 Billion Euros. Germany's trade surplus had climbed to a record in 2005, underlining the nation's strength as an exporter, government figures have shown. But foreign sales dipped in December and analysts said they nearly halted in the final quarter of 2005. Total German exports rose to 786.1 Billion Euros in 2005, while total German imports totalled 625.6 Billion Euros. German factory orders fell for a first time in four months in December and German retail sales growth slowed this month. A (Short) Economic Back Track: For the last four to five years, Germany's high class industrial machine park has been accelerating continually. The impetus for this acceleration began back when Americans discovered that they could empty the equity held in their climbing house prices and go shopping at the mall. German exports of consumer goods to the US soared (see the reported US trade deficits in this issue) right along with those of the Asian nations which, led by China, started sending their own tidal waves of consumer goods to the US. About two years into this massive acceleration of exporting consumer goods from the rest of the world to the US, most of Asia, and especially China, found that they had insufficient capital plant on the ground. So they started to import that capital plant, machinery, etc. What better place to buy capital goods than Germany? Orders from Asia and China for capital goods flooded into Germany. The German capital goods sector has now had a three-year run, exceeding any previous one since the end of the Second World War. The general German economy just stood and watched all this, apart from also producing a small tidal wave of consumer goods to send to the US. Now, not only has Germany been hit hard over the last two months on its export orientated consumer goods sectors, but it is clearly also being hit on its high grade capital plant export sectors. The orders on the books for both sectors of the German economy are suddenly no longer coming in. This is globally congruent with the falls in global shipping rates for bulk goods, which is further congruent with all the big falls in many global commodity prices. It all adds up to an accelerating global economic slowdown, a world wide economic deceleration in fact. Ocean shipping rates for bulk commodities and accelerating exports from Germany of new capital plant and machinery have always been a version of global economic bookends. When both were going up, pushed by swiftly rising global commodity prices, the world's economy expanded. But the underpinning for the global boom was all the American consumers emptying the equity out of their houses and spending up a storm at the nearest mall. It has taken the American about four years to tap themselves out, but all the data reported in this issue show that they have now done just that. AUSTRALIAN REPORT: AUSTRALIA'S CIVIL SOCIETY WAS KILLED ON FEBRUARY 15, 2006 On February 15, at a joint party meeting of Nationals and Liberal parliamentarians, the two parties jointly endorsed the recent changes to the Australian surveillance laws establishing the new powers indefinitely! Australians Are To Live Under East German STASI Rules: The police and spy agencies will for the first time be allowed to monitor the phone calls, emails and text messages of people NOT suspected of a crime under laws to be introduced to parliament next week. Australia's civil police will be able to tap all the phone calls and trace the emails and text messages of third parties to suspected crimes. Police will have 45 days to monitor a person NOT under suspicion in the hope it will lead them to the person or persons they do suspect. The Australian Security Intelligence Organisation (ASIO) have been given three months - twice as long - to do the same thing. Understand THIS, And Understand It FULLY: When all the above is enacted in law, and it will be, Australians will be living in a FULL surveillance state. Australians will have to take it for given and granted that they can and will be placed under state observation at any time and, if it is deemed required, under full state surveillance. Australians will also have to take it for granted that they will never know this is happening. Any Australian who has had any contact whatsoever with a "suspect", no matter how innocuous, will be tainted by that proximity alone. Take it also as a given that the bureaucracy will keep a record of this forever. If, over a period of years, an Aussie is subjected (unknowingly) to several such "sweeps", that Australian will be deemed as someone to be watched because other people he or she barely knew have attracted the attention of the "authorities". That's exactly what happened with the secret police - the STASI - in East Germany. But Aussies won't notice anything "sinister", they will simply find themselves with some new friends. The "Close Approach": This method was known to the STASI as the "close approach". People who had shown up in too many "security sweeps" were befriended by very nice people. These people were highly likeable, made conversation easily, and could be persuaded very convincingly to the point of view of those they had befriended. After a few months, the new "friends" slowly drifted away, for the most plausible of reasons. In East Germany, the trap was sprung a few months after that. The person who had been befriended was suddenly rounded up by the "authorities" where he or she was asked a lot of questions about the views of their "friend". The main question was why had the person who was being questioned not reported on their friend? After all, he had rather unorthodox, even drastic views, didn't he? This was the entrapment. It led hundreds of thousands of East Germans to spy on and even inform on sons, fathers, wives, husbands, sisters and daughters - all out of fear of what the "authorities" had on THEM. Under Tyranny - EVERYBODY Is A Suspect: With the laws reported on this page, Australia is being changed into something it has never been before. This is NOT the Australia that Aussies in their many thousands travelled to Flanders Fields and died to defend. Nor is it the Australia that Aussies travelled to Europe, Africa and Asia in WW II for - fighting against the exact political ideas which these "modern" Aussie laws represent. Australia's legacy, built and defended with equal tenacity since the First Fleet landed in 1788, is as a bastion of a CIVIL society where governments and their agencies never intrude at all. That legacy cannot survive these "new" laws. THE GLOBAL MARKET REPORT THIRTY YEARS LATER - REVERSE RECYCLING In the 1970s, a man named Walter Wriston rose to become chairman of Citicorp, a bank which was then and still is one of the major "money-center" commercial banks in the US. His rise had begun when, in the early 1960s as vice-president of First National City bank, he had invented the "CD". No, not the Compact Disc, that came two decades later. What Mr Wriston invented was the negotiable Certificate of Deposit. There had been "CDs" before, but this one was NEGOTIABLE, which meant that besides being simply issued by a bank, it could be bought and sold on the secondary market. As such, CD's became viable competitors for Treasury debt paper, especially short-term Treasury debt paper. As the head of Citicorp, Mr Wriston also introduced the ATM (Automatic Teller Machine) and was instrumental in the explosion of credit card use. After signing up with the fledgeling "Master Charge" (now MasterCard) organisation in the late 1960s, he pioneered the mass mailing out of cards to potential customers and lost $US 1 Billion before the operation finally turned a profit. Walter Wriston was the foremost player in the great transformation of US banking practices which took place in the lead up to and in the wake of the dawning of the fiat money era which began in 1971-73. His early embrace of the "EuroDollar" market paved the way for today's gigantic currency markets and his "innovative" lending practices paved the way for today's galactically huge derivatives markets. But despite all this, what Mr Wriston is best remembered for (he died in January 2005) is his role in the "recycling" of 1970s OPEC oil profits through the US money-center banks into third-world loans, a process which almost ended up in the destruction of the entire global financial system. Spiralling interest rates at the end of the 1970s pushed the Latin American nations, which were the main recipients of these loans, over the brink of bankruptcy. Recycling In The 1970s: In the early 1970s, the era of fixed prices ended for two of the world's fundamental commodities. First, in 1971, the $US 35 per ounce price of Gold which had been fixed since 1934 was abandoned when President Nixon closed the Gold "window" in August. Then it was oil's turn. In the years right after WWII, the US government actually curbed imports of foreign oil if the amount threatened to undermine the "Texas price" - which had become the world price. This became less necessary as time went on because a cartel of international oil producers got together to regulate prices throughout the world. This cartel was actually charged in the US under the anti-trust laws but the case never reached the courts - being settled by "consent". Slumbering under this blanket, the "posted" oil price remained at or near the $US 1.80 a barrel level for most of the 1960s. Then, in 1973, two things happened. First, the post-war regime of fixed exchange rates (unviable since the tie between the US Dollar and Gold was severed in 1971) was officially ended and the fiat floating currency regime was born. Second, there was a war between Israel and its Arab neighbours. This was the situation when the OPEC nations met in October 1973, when for the first time, the Arab members were NOT joined by the international oil companies at the meeting. The result was a near doubling of the oil price up to $US 5.12 a barrel, followed a few weeks later by another doubling of the price. This was the first "oil shock". It was also the beginning of the huge oil revenues flowing into New York. The gigantic oil revenues flowing into the Arab nations flowed out again in two streams. One was into massive armaments, most of which was supplied by the US. The other and bigger stream was into US money-center banks, which promptly "recycled" them to Latin America. Why? Because, in Walter Wriston's immortal words: "Governments can't go bankrupt." "Government's Can't Go Bankrupt" - Can They?: Governments have gone bankrupt - repeatedly - throughout history. Museums are littered with examples of worthless pieces of paper which were once the currency or "sovereign debt paper" of nations. The end result of all historic drives toward empire is collapse through insolvency. But when Walter Wriston said those words in the late 1970s, he was doing so in a context which the world had never seen before. Mr Wriston was operating in a GLOBAL fiat paper money system, a system in which no currency anywhere had a tie to reality by being redeemable in Gold. This was a system in which the words "insolvency" and "bankruptcy" had no meaning, because paper did not have to be redeemed in anything but more paper. Mr Wriston, Citicorp, and all the rest of the money-center banks in the US began acting on that premise within weeks of the onset of the fiat currency era in 1973. They have done so ever since and are still doing so today. The negotiable CDs which Mr Wriston introduced in the early 1960s had ballooned in quantity from $US 5 Billion to over $US 90 Billion by 1974. Credit cards, which had been a novelty in the early 1960s were ubiquitous by the mid 1970s. The somnolent post-war foreign exchange markets had become the gigantic casino which is the modern currency market by the mid 1970s. The foundation for the immense derivative quagmire which is the modern financial system was laid back then, all on the premise that the "punch bowl" would always be full because governments and Central Banks could always create (literally) enough paper to cover. Money making, which had been a process of exchanging goods for goods, had become a process of exchanging IOUs with nothing behind them but more IOUs. The most obvious end result resides in this: In 1971, the US government had run up a debt of $US 400 Billion. Of this amount, $US 25 Billion was borrowed to fight WWI and $US 220 Billion to fight WWII. That leaves $US 145 Billion borrowed in "peacetime" between 1789 and 1971. Treasury debt is now $US 8,250 Billion. 1789 to 1971 Gold currency era peacetime borrowings: $US 145 Billion. 1971 to 2006 fiat currency era peacetime (no wars declared by Congress) borrowing: $US 7,850 Billion. Over 95% of government debt incurred since 1971, and the US government still hasn't gone "bankrupt". Not yet. But what HAS changed since the 1970s is the way that the money is being "recycled". Reverse Recycling - The Situation Today: In the 1970s, oil was bought and sold in US Dollars. The OPEC nations sent their huge $US revenues back to the US. The New York money-center banks took this money and lent it to Brazil, Argentina, Mexico, Columbia, Uruguay, Paraguay et al. Every one of these nations spent the next two decades plus being bailed out (many of them repeatedly) by the US or by the US-run International Monetary Fund (IMF). The goal, from that day to this, has been to prevent the consequences of their lending actions from rebounding on the New York money-center banks which lent the money. Crash these banks and you crash the US financial system. That has not been allowed to happen. Today, the OPEC nations take their oil revenues and Asia, Europe and the rest take their trade surpluses and send it right back to the US. But the US doesn't send it anywhere. The US literally CONSUMES it. US debt has increased more than eightfold since the global fiat currency system suffered its near death experience at the start of the 1980s. Since the US Dollar remains the world's reserve currency, the current size of the global financial system is a direct result of this huge increase as the rest of the world has built their own paper structures on the "foundation" of the US debt structure. It is this debt structure which is now tottering - see the data in the Global Report and Inside the United States sections of this issue. In the 1970s, the third world debtors could not be allowed to fail because that would destroy the money-center banks in New York which would in turn destroy the US financial system. Today, the US has become the debtor which cannot be allowed to fail because the world has built its financial system on a base of US Dollars and Treasury debt. In the 1970s, the US recycled the world's capital by lending it where they could get the best return. Today, in reverse, the US consumes it all. Bankrupt Ideas At The Root: In this issue, we state that the true nature of our modern crisis concerns the LEGITIMACY of government. In morality and politics, legitimacy consists of preserving, protecting and defending the "life, liberty and estate" of the individual citizen. In economics and finance, it consists of preserving, protecting and defending the ability of the individual citizen to produce and trade the fruits of his or her labour. The foundation of this ability is the legitimacy of the medium of exchange (or money) used to facilitate this process. Destroy legitimate money, and you destroy free exchange between individuals. Destroy that, and you destroy the individual's RIGHT to enjoy the fruits of his or her labour. Destroy that and you destroy any meaningful claim to life and liberty. Legitimacy is lost at every step of the process. And at the end of it, a destination which is fast approaching, all legitimacy is forfeit. Today, all those who control and/or benefit from modern "governments" are locked in a deadly struggle to preserve their status. This struggle differs in no fundamental respect from those engaged in by the late Roman Emperors, by the "divine" Kings of France and Britain, or by the late and unlamented rulers of the Soviet Union and the East Bloc in Europe. Tragically, even the means chosen are almost indistinguishable - if Guantanamo is not a "Gulag", then what is it? Today, the maelstrom of "recycling" fiat money has reached its implosion point. It is all being sucked back to its source, there to vanish into the maw of consumption. It's true, with paper money, a government can't go "bankrupt". But it CAN become illegitimate and be SEEN to be illegitimate. When that happens, and it is happening now, the question of "bankruptcy" becomes an irrelevant sideshow. Recent Events: There are two recent events which put all others in the shade. They are even more potentially devastating because they are happening simultaneously. First, the inverted yield curve on US Treasury debt paper is steepening. On February 17, the yields for six-month to thirty-year paper were progressively lower, with the series only broken by T-Bills (3-month paper). Right now, the yield on 30-year Treasury paper is ONE BASIS POINT above the Fed Funds rate. US rates have literally nowhere to go but UP. The second event took place on February 16, when the Treasury's official debt "subject to limit" reached $US 8.183975 TRILLION - $US 25 million below the $US 8.184 debt ceiling. This is the point at which official Treasury debt figures have been frozen in the lead up to the last three debt ceiling rises. Treasury debt yields are inverted. The Treasury has hit its debt limit. The latest US GDP "growth" figure - for the fourth quarter of 2005 - is 0.3 percent. Recession (at best) is staring the US in the face. Gold: Please see Gold This Week (GTW): http://www.the-privateer.com/subs/goldcomm/gold.html What's Next?: The end of US reporting of their M-3 broad money numbers, and the planned start of the Iranian oil bourse (trading in Euros not $US) is a month away. The legitimacy of the current US Administration is being questioned more stridently every day. Questions about the legitimacy of the entire US government apparatus as presently exists remain in the wings, for now. Meanwhile, US markets remain in an unnatural calm with the Dow holding above the 11000 level at four year plus highs and the US Dollar still above 90 on the $US index. This CAN'T last, and it won't last. |